Rendell proposes taxing professional services

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Gov.
Ed Rendell told a group at Kennett High School last Friday that he wants to see
a drastic reduction in sales tax exemptions. The proposal is one of five
measures that, he said, would generate almost $1.5 billion in revenue for
Pennsylvania.

Rendell
called the sales tax, “The big mother of all” among his five points. He wants
the tax rate lowered from 6 percent to 4 percent, but exemptions cut from 74
down to five.

Rendell
would leave the exemptions on food, clothing, pharmaceuticals, manufacturing
and ticket sales by nonprofit organizations.

“Everything
else is subject to the sales tax. Lawyers’ fees, accountants’ fees, computer
services [would be] subject to the sales tax,” he said.

“The
33 percent cut would be the largest any state has made in their sales tax in
the last two decades,” Rendell said, “but I’m going to produce $1 billion per
year more in revenue. …By broadening the base, even though we’re cutting the
rate by one third, we are in fact generating more revenue for the state.”

He
doesn’t think that will happen this year, Rendell said.

Among
his other points, Rendell wants to see a tax on Marcellus Shale and smokeless
tobacco, the elimination of the vendor sales tax discount and removal of the
“Delaware loophole” in the Corporate Net Income Tax.

“I
think, sometimes, that raising taxes is not a bad idea,” the governor said.

He
said it was time to tax Marcellus Shale, following the suit of other states.

The
shale has natural gas pockets. Rendell said extracting the gas is an expensive
operation, but technology has improved, and prices for the product have gone
up. He referred to “a gold rush” for the shale operators.

The
state auctioned off some leases of land for the drilling last year and received
more than three times the price originally thought, he said.

Six
of seven states with shale have a severance tax on it. The state that doesn’t
is Pennsylvania.

“It’s
time for ‘Big Gas’ to pay its share,” Rendell said.

He
addressed the tobacco industry, too. Pennsylvania, while it does tax
cigarettes, does not tax cigars, or smokeless tobacco.

“It’s
time for that anomaly to end,” he said.

The
governor also wants to eliminate the vendor sales tax discount.

Rendell
explained that in the days of manual bookkeeping, businesses that collected
state sales tax could retain a percentage if they paid the tax on time. He said
it was done because bookkeeping then was time-consuming. Computers make it easy
today.

He
said the average person doesn’t get a break when they pay their taxes on time
and neither should businesses.

Those
three points would produce about $325 million dollars annually, he said, citing
his desire to increase school funding by $350 million this year.

“That’s
the education budget,” he said. “… Nobody here can argue with any of those
three. You’d have to be a crazed right-winger, or Grover Norquist [
president
of Americans for
Tax Reform
,]
to argue against any of those three.”

There
is also, what Rendell called the “ Delaware loophole” in the Corporate Net
Income Tax. He wants that tax, now at 9.9 percent, reduced, but the loophole
removed.

Seventy-one
percent of the companies subject to the CNI paid nothing in 2009, he said.

The
loophole allows businesses that operate exclusively in Pennsylvania to maintain
an office, or even just a post office box in Delaware—where there is no
corporate tax—to avoid the Pennsylvania tax altogether, Rendell said.

He
wants the state legislature to remove the loophole, but drop the CNI to 8.9
percent. That would produce another $150 million to $200 million annually, he
added.

Rendell
told the people in the Kennett crowd who agree with him to e-mail state Sen.
Dominic Pileggi, R-9, of Chester. Pileggi is the senate majority leader.

“If
Sen. Pileggi wants to make sure that the education budget stays intact, he can
do it, folks,” Rendell said. “To use the vernacular, ‘He’s the man.’”

Rendell
spoke to groups at three schools Friday, April 23, looking to generate public
support for his budget.

About Rich Schwartzman

Rich Schwartzman has been reporting on events in the greater Chadds Ford area since September 2001 when he became the founding editor of The Chadds Ford Post. In April 2009 he became managing editor of ChaddsFordLive. He is also an award-winning photographer.

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